Science is not as esoteric as you think. The term scientific is all about adapting and following a specific pattern in handling the task at hand. The scientific approach is more effective than any other traditional one because it is the most reasonable and verifiable way of doing anything.
Devise a Scientific Trading Strategy
It is not a secret that humankind has come this far only by developing a method to learn and utilize anything and everything life has given to them. It is termed as the scientific method. It refers to a system of consequent tasks which are the most reasonable things to do to learn something. This method raises some specific questions that need to be answered before referring to something as proven or real.
Below are the different steps of the scientific method.
Identification through observation
The first rule of the scientific approach is to identify a thing or concept by observing it. After observing or experiencing the existence of anything, one must question it to know about it more.
Like if you observe a trend growing, you can know about it by asking and answering why the trend has begun, what factors fuel it, and how long those factors may remain in play. You can check here and learn more about the importance of observation. This will definitely change your perception and allow you to trade like pro traders in the Mena Region.
Formulation of a Fundamental Hypothesis
A hypothesis is a conjecture, proposition or conclusion built on insufficient information. A conjecture is also unproven. You can also term it as a guess.
It is our own projection of thoughts to answer different questions. It also can refer to what we think of as the ultimate solution to our problems.
Collection of information
Hypotheses are only our guesses. May it be a wild guess or an educated guess. But for the sake of being scientific, our guesses should be educated. They should be testable. Wild guesses are all about having hunches.
Once we construct educated hypotheses, we should devote ourselves to searching for relevant information. This information can support or deny our premise. It can even open a new window through which we can see a different angle of our problem.
Regardless of their nature, we should collect all data types as much as they are relevant to our study. We use this information to justify our hypotheses.
Formulation of Theory
After conducting all kinds of tests and attacking our problem from every possible angle, we reach our conclusion. This conclusion is termed as the theory.
Even a theorem can be subjected to further experimentation. We can get a whole new perception of our problem from it. From that point, we can even formulate new tests to get a clearer view. By doing so, we can get closer to the truth.
A theory can be defined as a well-materialized explanation reached through the most rational approach that has been repeatedly tested and has been demonstrated through observation and justification.
There are several arguments among scientists about different scientific methods and their virtues and usefulness. But these are the most fundamental steps all of them have in common.
Adopting Scientific Method in Trading Strategy
Once learned comprehensively, anyone can adopt the scientific method when formulating their trading strategy. Here are the steps.
- The first step is to observe the price action to construct a hunch about the price trends.
- This hunch will act as the hypothesis. After its development, you need to conduct tests and experiments.
- You can utilize a back-testing tool. In such a case, historical data can play a crucial role here. You must free yourself from conventional beliefs and be objectiveabout your testing process.
- If your hypothesis or hunch can be confirmed by many trades, it demonstrates its authenticity.
Conclusion
A scientific trading strategy is a modern but ingenious idea. The process is a tested and proven problem-solving method for anything. Pragmatic Forex traders can leverage this technique to harvest the maximum reward.